A group of 85 economists has expressed support for the Honduran government’s decision to withdraw from the World Bank’s arbitration body, adding a new dimension to the ongoing dispute between Honduras and the crypto island-building company Próspera. Próspera, a special economic zone on the island of Roatán, has been seeking $10.8 billion in compensation from the Honduran government after a change in legislation in 2022 revoked the island’s special status. The conflict is being fought in the International Centre for Settlement of Investment Disputes (ICSID). However, in an open letter dated March 19, economists from Progressive International, an organization that aims to unite and mobilize progressive forces worldwide, argue that Honduras’ withdrawal from the international court is a “critical defense of Honduran democracy.”
Próspera brought its case before the ICSID in late 2022, claiming that Honduras owes it billions for violating a “50-year legal stability guarantee” by repealing laws that impacted the legal certainty of the crypto island’s special economic zone status and its investments. The economists, in their open letter, assert that there is little evidence to support the notion that governments benefit from the arbitration body. “We find scant economic evidence that mechanisms like ICSID stimulate meaningful foreign direct investment,” they state.
Since the election of President Xiomara Castro in 2021, Honduras has faced 10 ICSID cases, with Próspera’s nearly $11 billion claim representing a third of the country’s gross domestic product. Castro specifically repealed laws that established Zones of Employment and Economic Development (ZEDEs), which were intended to attract foreign investors and bolster the Honduran economy. In June 2021, the United Nations expressed concerns about the human rights implications of ZEDE’s legal frameworks and called for an alternative system. The UN highlighted that approximately 35% of Honduras, mostly areas with indigenous and Afro-descendant populations, was designated for ZEDE use without proper consultation.
Próspera established a ZEDE on the island of Roatán, granting it sovereignty over the island and the authority to make its own laws, establish its own courts, and impose its own taxes. The autonomous charter city catered to crypto enthusiasts by making Bitcoin legal tender, establishing a Bitcoin education center, and embracing blockchain technology and decentralized autonomous organizations.
However, Próspera faced opposition from local island residents who were concerned about its expanding presence and feared displacement from their ancestral lands. The UN also criticized the lack of consultation and information provided to communities near Próspera regarding the project, which Próspera denied. In February, Reuters reported that the former head of Honduras’ financial watchdog, Jose Luis Moncada, stated that the agreement between the country and Próspera is still in effect. Moncada emphasized that Honduras is obligated to respect the outcome of any arbitration presented before the end of August, when it is scheduled to withdraw from the ICSID.